LinkedIn gains after pricing at cheap end; Aegerion regains ground; Salix shares plunge

By Rebecca Melvin

New York, Nov. 6 – LinkedIn Corp.’s newly priced 0.5% convertibles moved up in active trade on Thursday after the Mountain View, Calif.-based business-oriented social networking service priced $1.15 billion of the five-year convertibles at the cheap end and beyond the cheap end of initial talk.

The new LinkedIn bonds were seen at 102.25 bid at the open with the stock at $221.25, according to a syndicate source.

At late morning, the new LinkedIn convertibles were seen at 102.25 bid, 102.75 offered with the shares at $225.00.

“The deal did very well,” a New York-based trader said, attributing its success to revised pricing that lowered the premium and with a coupon bump up above the 0.25% talked midpoint.

Aegerion Pharmaceuticals Inc.’s 2% convertible traded up a couple of points on an outright basis and expanded on a dollar-neutral basis after the Cambridge, Mass.-based biopharmaceutical company announced that it is acquiring an orphan drug from AstraZeneca.

Aegerion tumbled last Friday on a third-quarter earnings miss and amid allegations tying the company’s chief executive to a scandal swirling around Jefferies’s global head of health care investment banking.

Solazyme Inc.’s convertibles were indicated sharply lower amid a slide in the underlying shares of the bio-industrial company to $3.14, following disappointing earnings and production plant problems.

Elsewhere, Molycorp Inc.’s convertibles were lower after the Greenwood Village, Colo.-based miner of rare earths minerals reported a much wider quarterly loss amid a toxic mix of lower pricing, lower volume and higher costs.

The Molycorp 6% convertibles due 2017 traded down to the low 30s from the mid-30s. Shares fell 9%.

After the market close, Salix Pharmaceuticals Ltd. was being closely watched following disappointing earnings and the resignation of the chief financial officer of the Raleigh, N.C.-based drug company.

Also after the market close, CTI BioPharma Corp. launched an overnight deal of convertible preferred stock via bookrunner Piper Jaffray & Co.

New LinkedIn does well

LinkedIn’s new 0.5% convertibles were better on swap by about 1.5 points to 1.75 points, a trader said around midday. “They did come in a little bit” from the open.

Pricing of the LinkedIn deal came at the cheap end of 0% to 0.5% coupon talk and at the cheap end of 35% to 40% talk for the premium. Premium talk was revised down during marketing from 40% to 45%.

The pricing raised questions about the health of the convertibles primary market.

“We’re seeing some valuation push-back on large deals such as this one, which was over $1 billion in size,” a syndicate source said.

“Pricing came below the low end of the range for the premium; but it you look at the terms, they are still within the existing context, and the message is that the market is still open for large transactions,” he said.

LinkedIn was the centerpiece of trading action on Thursday, accounting for almost half of total volume recorded by Trace data. Some of the froth led to “topping off” of allocations in related names like Twitter Inc. and Red Hat Inc., which had softened in recent sessions.

“We saw some of the richer technology names like Twitter and Red Hat sold yesterday and in the last week, and come in. But they were better on swap on the LinkedIn deal,” a New York-based trader said. He added that market tone overall was unchanged.

Of recent technology new issues, Red Hat had the most outright interest, mainly because of its BBB rating. LinkedIn saw more allocations to hedged investors, and the balance was in line with other recent new deals, a syndicate source said.

The deal has a $172.5 million greenshoe and was sold via joint bookrunners Goldman Sachs & Co., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC. Allen & Co. was a co-manager.

In connection with the pricing of the notes, LinkedIn entered into convertible note hedge and warrant transactions, or a call spread, with initial purchasers of the bonds.

The strike on the warrant transactions is $381.82, which boosts the initial conversion premium from the issuer’s perspective to 75%.

About $70.2 million of the proceeds will be used to pay the net cost of the call spread with remaining proceeds earmarked for general corporate purposes.

Aegerion recoups

Aegerion’s 2% convertibles due 2019 traded up a couple of points to 84.375 bid, 85.125 offered versus an underlying share price of $21.98 on Thursday. That was up from 82.125 bid, 82.875 offered previously.

“The Aegerion convertibles opened up on the back of an acquisition, and they were the most actively traded bonds in the health care space,” a trader said.

They were up about 2 points on an outright basis and 0.5 point to a point on hedge.

Shares were also up 8%.

Last Friday, the stock “got smoked” on bad numbers and the drugs and sex scandal surrounding Jefferies’ global head of health care investment banking. “But they have been doing better after the hard sell-off, and today they announced an acquisition,” the trader said.

The Cambridge, Mass.-based company said that it is acquiring AstraZeneca’s orphan drug Myalept (metreleptin for injection) that is indicated to treat complications of leptin deficiency in patients with generalized lipodystrophy.

Under terms of the agreement, Aegerion will pay AstraZeneca $325 million upfront to acquire the global rights to develop, manufacture and commercialize Myalept, subject to an existing distributor license with shionogi covering Japan, South Korea and Taiwan.

Salix in focus after earnings

Salix’s 1.5% convertibles due 2019 trade in the 200s. The Salix 2.75% convertibles due 2015 trade close to 300, a trader said.

“They will nuke down with the shares. The question is where will the stock open?” he said, referring to Friday’s trading action in this name.

Salix shares dropped in after-hours trade to $88.00, which was down $51.55, or 37%.

“The stock is blowing up,” the trader said. “What happens to the bonds will depend on what kind of deltas holders were on.”

Salix was a takeout play, and so “arbs could have been light and might have been hurt a little bit,” he said.

The company reported a loss of $88.6 million, or $1.39 per share, for the third quarter. Excluding items, earnings were $1.53 per share, which was about 3 cents below expectations.

Revenue was higher compared to a year ago at $354.7 million but still below expectations.

Mentioned in this article:

Aegerion Pharmaceuticals Inc. Nasdaq: AEGR

CTI BioPharma Inc. Nasdaq: CTIC

LinkedIn Corp. Nasdaq: LNKD

Molycorp Inc. NYSE: MCP

Red Hat Inc. NYSE: RHT

Salix Pharmaceuticals Ltd. Nasdaq SLXP

Solazyme Inc. Nasdaq: SZYM

Twitter Inc. Nasdaq: TWTR

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